What could the election mean for your finances?
As we speed towards the election on 4 July, the parties have delivered their manifestos, leaving voters to contemplate what it all means for them on a personal level. In this article, AJB Wealth compares the policies likely to impact your savings, investments and tax bill. Scroll down for sections aimed at specific groups, such as parents, pensioners, property buyers, borrowers and non-UK residents. We also consider what the election might mean for the economy as a whole, given that the polls are unanimous in predicting a large Labour majority.
ALL TAX PAYERS
Both Conservatives and Labour have pledged not to increase income tax rates or VAT. However, neither party plans to increase the tax-free personal allowances, which have been frozen since 2021.This means people are paying more tax as inflation rises.
What’s more, it’s important to remember that both parties are committed to tax rises already scheduled for the next parliament. This means no changes to income tax and national insurance thresholds until 2028, as well as planned increases to fuel duty, stamp duty and business rates. These measures could increase taxes by around £800 per household by 2028-29.
See below for tax measures affecting specific groups, such as parents, house buyers, non-doms and investors with off-shore trusts.
Labour
No increase in income tax, VAT or National Insurance in the Labour manifesto, but £8.6bn of tax increases aimed at wealthier voters (see below).
Labour has not ruled out increasing capital gains tax (CGT).
Private equity bosses to be taxed more on performance related pay, which will be treated as income rather than capital gains.
Conservative
No increases to income tax or VAT in the Conservative manifesto
National Insurance to fall by 2% to 6%. This would be a saving of £1,350 to someone earning £35k.
The self-employed will no longer pay Class 4 National Insurance contributions, and the long-term plan is to end National Insurance altogether.
Capital gains tax will not increase.
No changes to inheritance tax have been announced.
Reform
Large tax cuts are proposed in the Reform manifesto. That said, leader Nigel Farage has since said the manifesto ‘contract’ is merely a basis for debate.
Income tax threshold rises from £12,570 to £20,000.
Higher rate tax rate kicks in at £70,000 instead of £50,000.
Lower fuel duty.
Inheritance tax to be cut to 20% and only applied to estates above £2m. There will also be an option to donate to charity instead.
Raise the VAT threshold.
Lib Dems
According the manifesto, the Lib Dems will increase the personal allowance, so that people pay less income tax.
Reform capital gains tax (CGT) and close CGT ‘loopholes’. CGT to be charged in-line with income tax rates: 20% for gains up to £50,000, at 40% for gains between £50,000 and £100,000, and at 45% for gains over £100,000. Raise annual tax-free CGT allowance from £3,000 to £5,000, on top of a new tax-free allowance for inflation.
Green Party
The Green Party manifesto puts forward a 1% wealth tax on assets above £10m and 2% tax on those with assets over £1bn.
The Greens would also align CGT rates with income tax and get rid of the upper earnings limit on National Insurance (currently £967 per week). This means higher earners would pay more.
SNP
The SNP manifesto commits to ensuring that NI rates and thresholds fit with ‘progressive’ tax rates.
PENSIONERS
Both Conservatives and Labour back the triple lock, so that the state pension will continue to rise in line with the highest of inflation, earnings and 2.5%
Labour
Would honour the triple lock. In addition, a review of pensions may lead to further measures.
Conservative
Pensioners receive greater protection under a quadruple lock. On top of the triple lock, the tax-free personal allowance for pensioners will rise in line with the highest of earnings, inflation and 2.5%.
It will still be possible to take 25% of pension pot without paying tax.
Pensioners continue to receive winter fuel payments, free prescriptions and TV licences.
Women Against State Pension Inequality (WASPI): Will work with parliament on an appropriate response.
Lib Dems
Seek to compensate women born in the 1950s who unfairly lost out due to the equalisation of pension age for men and women.
SNP
Maintain the triple-lock guarantee.
Full compensation for ‘WASPI’ women.
Move towards a ‘wellbeing state pension’ to ensure a reasonable standard of living for everyone.
Oppose further increases in state pension age.
PENSION SAVERS
Labour
There’s no mention of the lifetime allowance in the manifesto, but it’s since been announced that Labour wouldn’t bring it back. This is positive news for higher earners.
The manifesto was also silent on reducing tax relief on pension contributions.
Conservative
Pension savers continue to receive tax relief on pension contributions at the current rates.
Will not extend employer National Insurance to pension contributions.
Reform
Explore alternative pensions model.
Green Party
Introduce a single rate of tax relief, based on basic rate tax, on pension contributions.
MORTGAGE HOLDERS AND OTHER BORROWERS
Both the Conservatives and Labour have tried to position themselves as the party to keep interest rates low. This is clearly a key concern for anyone with a mortgage. Indeed, newly drawn mortgages rates have soared to almost 5%. Compare this to 2021 when fixed rate deals were available at a low of around 1%.
When considering interest rates, it’s important to remember that it’s the Bank of England which sets base rates. What’s more, the Monetary Policy Committee has been operationally independent of the government since 1997.
However, while the government can’t change interest rates, it can impact them indirectly through its handling of the economy and through higher government borrowing.
PARENTS
Labour
VAT to be applied to school fees, and private schools will pay business rates. The revenue will fund more teachers in state schools.
Conservative
The roll-out of free childcare for children aged nine months and over will continue, and be complete in September 2025. However, there may be practical obstacles to this.
Child benefit to be assessed on a household basis with no reduction for couples earning up to £120,000. (Currently, the benefit is in effect reduced when one parent earns £60,000 or more.)
Lib Dems
Changes to maternity/parental leave. Six weeks of leave for each parent, paid at 90 per cent of earning. Plus 46 weeks of parental leave to share at up to £350 per week. This is double the current rate.
SNP
VAT on private school fees.
Enhanced rate of child benefit for one-year olds.
NON-UK RESIDENTS, NON-DOMS AND WEALTY INVESTORS WITH OFF-SHORE TRUSTS
Labour
Bring offshore trusts within the scope of inheritance tax (IHT).
Labour policy on non-doms builds on new legislation announced by the government in March. The non-dom regime is due to be phased out in April 2025 and everyone moving to the UK will pay tax on foreign earnings after four years of living here. Under current plans, there would be a 50% discount on the tax owed in foreign income in 2025-26. Under Labour, this discount would not be introduced.
Stamp duty paid by non-UK residents will be increased by 1%.
Conservative
As explained above, the non-dom regime is due to be phased out in 2025.
CARE HOME RESIDENTS AND OTHERS NEEDING PERSONAL CARE
Conservatives
Implement a planned £86,000 cap on care costs from October 2025. The cap would be limited to personal care, and would not include food, accommodation and other ‘hotel’ costs in a care home.
In addition, Conservatives would take forward the reforms in its White Paper. This could include a more generous means test of £100,000 to qualify for some help before the cap kicks in. Meanwhile, those with less than £20,000 would pay nothing.
Labour
No cap on social care costs mentioned in the manifesto, but shadow health and social care secretary Wes Streeting has since said that Labour will implement a cap.
Lib Dems
Free personal care based on the model implemented in Scotland.
PROPERTY BUYERS
Conservative, Labour and Lib Dems have all pledged to build 1.5 million or more homes, though many believe these figures to be ambitious.
Labour
First-time buyers struggling to raise a deposit will benefit from a permanent mortgage guarantee scheme.
Stamp duty paid by non-UK residents will increase by 1%.
Conservative
Extend the stamp duty holiday for first time buyers on property up to £425,000.
A new Help to Buy scheme, offering up to 20% towards the cost of a new-build.
Speed up the planning process to build more homes on brownfield sites in urban areas.
A temporary two-year capital gains tax holiday for landlords who sell to tenants.
Reform
Reduce stamp duty: 0% on properties under £750,000; 2% on £750k–£1.5m; 4% over £1.5m.
Reverse the 2019 tax changes that made buy-to-let less attractive to landlords.
Fast track planning for development of brownfield sites.
SNP
Reintroduce a simplified Help to Buy ISA scheme.
LEASEHOLDERS AND RENTERS
Labour
Measures to help leaseholders and people renting. fault evictions for renters.
An end to no fault evictions.
Conservative
Leaseholders will pay a maximum of £250 ground rent.
Lib Dems
Plan to abolish residential leaseholds and cap ground rents at a nominal level.
THE ECONOMY
The latest YouGov poll, in common with others, predicts a huge majority for Labour, surging support for Reform and Lib Dems on track for significant gains.
According to analysis from consultancy Capital Economics, a large majority has historically been linked to an increase in investment. This in turn leads to a higher GDP and tax revenue. Moreover, a clear majority brings certainty in that the government can more easily drive through its agenda.
As things stand, the markets are prepared for a clear Labour win. A minority administration or a coalition may be unsettling, and could potentially hold back investment. However, this would depend on how people perceive the coalition.
Conservative
Last week’s news that inflation has fallen to 2%, the lowest rate in three years, was a bright moment in the Conservative campaign.
£17bn of tax cuts to revive the economy is at the centre of their manifesto.
Aim to keep public sector borrowing below 3% of GDP by the end of the next parliament in 2029-30.
Increase national broadband coverage by 2030 and speed up infrastructure delivery.
No increase in corporation tax.
Lib Dems
Want to rebuild our relationship with the EU.
Focus on green infrastructure.
Promise to get national debt falling as a proportion of the economy.
Greens
£40bn a year of green investment.
A carbon tax to accelerate the green transition.
Nationalisation of rail, water and five big energy companies.
Reform
Raise corporation tax threshold to £100k. Reduce the main rate from 25% to 20%, then to 15% from year 5.
WHAT CAN YOU DO NOW TO PROTECT YOUR SAVINGS AND INVESTMENTS?
Whichever of the main parties is elected, it’s likely that tax burdens will rise due to freezes in the personal allowances and other taxes mentioned above. Take every opportunity to maximise savings in tax efficient vehicles such as ISAs and pensions. A financial planner or wealth manager will help you explore this from every angle. See our upcoming article on the possible impact of the new government on your savings and investments.
The highly qualified team at AJB Wealth is well placed to help you plan your financial future. To discuss your situation, please book an obligation-free consultation, or call us on 01428 774 070.
Important: The content of this bulletin is for general consideration only and does not constitute advice. No action must be taken, or refrained from being taken, without advice. This company accepts no responsibility for any loss occasioned as a result of any such action, or inaction. You are also reminded that investments can fall, as well as rise. And in the event of early encashment, you may receive less back than your original investment.
